Q.Explain the Ratio method of measuring price elasticity of demand.

Ratio (percentage) method: Ed = % change in quantity demanded divided by % change in price; the numerical value shows the degree of elasticity.

The ratio method, also called the percentage or proportionate method, is the most common way to measure price elasticity of demand. It compares the proportionate change in quantity demanded with the proportionate change in price.

Formula: Ed = percentage change in quantity demanded / percentage change in price, i.e. Ed = (change in Q / original Q) x 100 divided by (change in P / original P) x 100.

How the value is read:

• If Ed = 1, demand is unitary elastic (both change in the same proportion).
• If Ed is greater than 1, demand is relatively (more) elastic — quantity changes more than price.
• If Ed is less than 1, demand is relatively (less) inelastic — quantity changes less than price.
• If Ed = 0, demand is perfectly inelastic; if Ed = infinity, demand is perfectly elastic. …